Too Many Moving Parts

It is believed that stock price and in turn index levels are a reflection of collective intelligence of the market participants. Different participants view situations differently and also view a wide variety of situations. They input their thought process in the market by taking positions and price is discovered. There are times when the various situations over bearing the markets are few or are largely local or are largely global.

The extent of volatility in the market is a reflection of these moving parts. The more such moving parts and more the confusion around it from the participants, higher the volatility. One would see that during such times a small piece of news sends stocks and indices flying high or plummeting sharply. I think we are clearly in such times right now. There are just too many moving parts.

US Elections:

One of the biggest reason is the election in the USA. For a country like India, where FII flows is of lot of prominence and out of the total FII flows ~50% comes from USA. Along with it so many other reasons on economic and geo-political front makes is it important who presides at the White House. The policies of the both the contestants on issues like China, Immigration, Tax, Stimulus, Interest rates and so on are very different. This makes taking a view on the future of companies or markets difficult. Markets have clearly been on tenterhooks because of this. A clear indication of this is the CBOE VIX which has moved to near 40 levels, much higher than previous election levels.

Bihar Elections:

Back home the state of Bihar is going through its election season. All the parties have flexed their muscles. With NDA (BJP and JD(U)) on one side and UPA (Congress and RJD) on other side are trying to put their best foot forward, it’s going to be an interesting contest. In the 243 seat assembly, 143 is the magic number. Lot of young blood like Tejashwi Yadav and Chirag Paswan are contesting this election. Also, it would clearly reflect the view of people, especially in rural India, on government’s steps and actions during Covid times. Also, being one of the major elections post 2019, will also give an idea if any anti-incumbency is building up or not.

Second Wave of Covid:

The second wave of Covid has started aggressively in many countries of Europe. Also, USA is reeling under its pressure. In USA from as low as 30,000 cases in September they have moved to nearly 90,000 cases now. Similarly, in Europe where the cases had dipped to nearly 20,000 in August has gone back to 2,50,000. There are fresh announcements of lock downs in Europe. The second wave in seems to be more ferocious then the first one in some parts of the world.

Result Season:

The result season has been largely fine till now, the strength has been largely reflected in IT and Cement sector. While, FMCG and Pharma have been largely in line. Banking seems more like a hope trade. Currently, there is not much of clarity in terms of what is the quality of assets and interest income. Still only because everything is postponed to a post moratorium period numbers look optically good. While, the companies whose performance is good tend to announce results early on, the weaker ones come later. Now seems to be time for that.

The stimulus package in US which was expected pre elections has now moved to post elections and surely if the incumbents change, its form may also change. Net-net with so many moving parts lets brace for higher volatility in the coming days.

Happy Trading!!!

Cheers.